This article is reprinted from the Economic Freedom blog.
In 2008, the federal government bailed out two major automakers – General Motors and Chrysler, along with their financial groups that offered loans. At the time, it was said that these bailouts needed to happen to prevent a crisis, and that these auto companies would pay back the taxpayers in time.
The companies got tens of billions of dollars to keep operating. Disaster averted? No. Chrysler and GM certainly benefited, but the taxpayers are now footing the bill. The Treasury Department has admitted that taxpayers will lose a staggering $14 billion from the bailout. At least, that was what they said last month. New estimates have just been released, according to the Detroit News:
The Treasury Department dramatically boosted its estimate of losses from its $85 billion auto industry bailout by more than $9 billion in the face of General Motors Co.’s steep stock decline.
In its monthly report to Congress, the Treasury Department now says it expects to lose $23.6 billion, up from its previous estimate of $14.33 billion. (emphasis added)
$23 billion is an enormous price to pay for those companies to continue functioning, and that wasn’t even the total price tag. Ford has benefited from being the American automaker that didn’t take bailout money, but few people remember that Ford actually got a $6 billion loan guarantee under the same program Solyndra did.
These government loans and guarantees waste resources and are another example of government – rather than consumers – directing the economy and deciding what products and services should be produced instead of consumers.
Is it the proper role of the government to take money from individuals and give it to certain industries for their survival? The market should decide which companies survive and which ones don’t. Instead, cronyism is benefitting a specific group at the expense of everyone else.
Cronyism is great for the companies getting bailed out, and the politicians who get their support. Getting someone else’s money is always nice, and so is giving someone else’s money away. But having your money taken so that a politically well-connected industry can avoid bankruptcy is not nice, especially when it costs tens of billions of dollars. It’s about as much fun as getting into a car wreck.